SOCIAL SECURITY BENEFITS ARE OFF LIMITS WHEN DIVIDING MARITAL ASSETS

August 5, 2004

Steven P. Garmisa
Hoey & Farina Attorney
garmisa@hoeyfarina.com
1-888-425-1212

Forget about a spouse's right to Social Security benefits when allocating assets in a marriage dissolution case.

Not only are these benefits insulated from direct allocation, but a spouse's right to receive Social Security benefits may not be considered when divvying up other property. And if you don't like it, talk to Congress. In re Marriage of Crook, 2004 WL 34358512 (Ill., June 24).

The case involved a lady who asked for an additional portion of marital assets because she was stuck with a paltry pension under a state plan, while her husband participated in the federal pension program.

The trial judge rejected the wife's request, but the Appellate Court reversed, remanding the case with instructions to "consider" the wife's demand for an increased chunk of marital assets to compensate for loss of a share in the husband's pension benefits.
Reversing the Appellate Court, the Illinois Supreme Court ruled that granting the wife's request was prohibited by federal law.

Here are some highlights of Justice Thomas L. Kilbride's opinion (with various omissions not noted in the quoted text):

"The issue of whether a court may offset a perceived disparity in Social Security benefits by awarding one party to a divorce a greater share of marital pension benefits is an issue of first impression in this court.

"Section 503(d) of the Illinois Marriage and Dissolution of Marriage Act requires the trial court to divide marital property in 'just proportions,' taking into account enumerated statutory factors and any additional factors the court deems relevant.

"Pension benefits attributable to contributions made during the marriage are marital property. Thus, in this case we must examine the interplay between the Illinois Marriage and Dissolution of Marriage Act and the Social Security Act. This presents a question of law that we review de novo.

"In enacting the Social Security Act, Congress created an extensive and highly regulated public benefit plan. As part of this plan, Congress reserved to itself the exclusive power to alter, amend or repeal any provision of the act.

"Because Congress reserved the authority to amend or repeal provisions of the act, the U.S. Supreme Court has held that Social Security beneficiaries have a 'non-contractual interest' in Social Security benefits and that these benefits are not to be considered as an accrued property right.

"The court has contrasted an individual's non-contractual interest in Social Security benefits with a person's contractual interest in a private pension plan: in the latter, the right to benefits is assured and is based upon that person's payments into the plan. Indeed, the court has observed that, 'To engraft upon the Social Security system a concept of "accrued property rights" would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands.'

"Germane to this case, Congress has also specifically provided for division of Social Security benefits where a husband and wife seek divorce. Section 402 of the act enumerates the benefits to be received by divorced spouses, providing to them, under circumstances specified by Congress, a portion of their former spouse's benefits. 42 U.S.C. [sec]402(b)(1).

"Thus, Congress has crafted a statutory scheme that strictly regulates and limits the payment of derivative Social Security benefits to a divorced spouse.

"Emphasizing Congress' desire to regulate payments of benefits under the act, section 407(a) prohibits a beneficiary from transferring or assigning his or her benefits to another.

"Specifically, this provision provides that, 'The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment or other legal process, or to the operation of any bankruptcy or insolvency law.'

"Thus, section 407(a) imposes a broad bar against the use of any legal process to reach all Social Security benefits. Although Congress has carved a narrow exception to this rule to allow the collection of past due child support or alimony ('maintenance' in Illinois) from Social Security benefits. Congress has also explicitly excluded any similar payment obligation arising from a 'community property settlement, equitable distribution of property or other division of property between spouses or former spouses.' 42 U.S.C. [sec]659(i)(3)(B)(ii).

"It is with this statutory framework in mind that the question presented in this appeal must be analyzed. The U.S. Supreme Court has never addressed the precise issue in the cause before us: whether a state court may consider federal Social Security benefits in determining the division of assets in a marital dissolution proceeding. Guidance may be gleaned, however, from the Supreme Court's decision in Hisquierdo v. Hisquierdo, 439 U.S. 572 (1979), where the court addressed the similar question of whether retirement benefits awarded to an ex-spouse under the federal Railroad Retirement Act of 1974 could be subject to attachment or an offsetting award during state divorce proceedings.

"The court determined that, under the principle of federal preemption arising from the federal Constitution's supremacy clause, either a division of those benefits or an offsetting award in the state divorce action impermissibly conflicted with the Railroad Retirement Act.

"Although the Supreme Court's decision in Hisquierdo specifically addressed the treatment in state marital dissolution proceedings of benefits flowing from the Railroad Retirement Act, the analysis employed in the Hisquierdo case has been recognized as applying equally to Social Security benefits. In fact, Hisquierdo frequently drew parallels between the Railroad Retirement Act and the Social Security Act, and analogized their provisions throughout the opinion, holding that they are fundamentally similar."

"In this court's view," Kilbride continued, after providing a detailed review of that high court case, "Hisquierdo establishes two important points: Social Security benefits may not be divided directly or used as a basis for an offset during state dissolution proceedings.

"Although the courts in a number of other states have permitted a trial judge to consider a spouse's anticipated Social Security benefits as one factor, among others, in making an equitable distribution of the distributable marital assets, we reject that analysis.

"Instructing a trial court to 'consider' Social Security benefits, as the Appellate Court did in this case, either causes an actual difference in the asset distribution or it does not. If it does not, then the 'consideration' is essentially without meaning. If it does, then the monetary value of the Social Security benefits the spouse would have received is taken away from that spouse and given to the other spouse to compensate for the anticipated difference. This works as an offset meant to equalize the property distribution.

"That this type of 'consideration' amounts to an offset is recognized in the well-reasoned decisions from other state jurisdictions holding that under Hisquierdo, it is improper for a circuit court to consider Social Security benefits in equalizing a property distribution upon dissolution."

"We are, however, fully aware of the potential inequities implicated by the federal preemption protection of one spouse's Social Security benefits. Nonetheless, Hisquierdo and the federal preemption doctrine compel our conclusion in this case. It remains a fact that it is not the province of this court -- or of any state court -- to interfere with the federal scheme, no matter how unfair it may appear to be.

"In its opinion in Hisquierdo, the U.S. Supreme Court acknowledged the potential inequity in the federal benefit scheme, and also that its ruling in that case could lead to unfair results.

"The court emphasized, however, that unfairness was a consequence of the statutory scheme as enacted by Congress, and that the federal scheme could not be disrupted by state courts: 'For the present, however, the community property interest that [the ex-spouse] seeks conflicts with [the federal statute], promises to diminish that portion of the benefit Congress has said should go to the retired worker alone, and threatens to penalize one whom Congress has sought to protect. It thus causes the kind of injury to federal interests that the supremacy clause forbids. It is not the province of state courts to strike a balance different from the one Congress has struck.'

"Accordingly, it is up to Congress, and not the state courts, to correct any inequity in the federal system."

Closing with a sprinkle of hope for spouses covered by state pension plans, Kilbride noted:

"Other state courts facing the issue of inequity have held that a spouse who participates in a pension system in lieu of Social Security must be placed in a position similar to that of the other spouse whose Social Security benefits will be statutorily exempt from equitable distribution. In this case, however, the parties have not argued the applicability of these cases or cited their rationale. Thus, we leave the resolution of that issue for another day.

"In sum, the preemption principles animating Hisquierdo are equally at issue in the case before us. In drafting the Social Security Act, it is evident that Congress intended to preempt state law property division schemes as applied to Social Security benefits upon divorce.

"As stated, in section 402 of the act, Congress has carefully and deliberately limited a divorced spouse's ability to reach the expected benefits of the other spouse. By operation of section 402, a divorced spouse may not look to state marital property law for distribution of Social Security benefits. The provisions set forth in section 402, together with the anti-assignment provisions contained in sections 407 and 659 of the act, reflect the intent of Congress to maintain the federal character of the Social Security system and preempt state interference.

"Thus, we reverse that portion of the Appellate Court's order reversing the trial court's division of the parties' retirement benefits."

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